Another Housing Bubble Brewing Away?

The positive news coming out of the housing market over the past couple of years has been a breath of fresh air for landscapers and other home improvement contractors. That’s why recent talk of another housing bubble—similar to the one that caused the economy and, in turn, landscaping industry to collapse in 2008-9—has burst a few bubbles of its own this summer.

The International Monetary Fund (IMF), in mid-June, issued a warning that housing markets in several developed countries, including the U.S. and Canada, are seeing home prices climb to a level that might suggest another housing bubble in the works. Others are not so convinced.

According to an article at forbes.com, another bubble is not brewing. A bubble is characterized by an unsustainable rise in prices, often fueled in part by lax lending standards. These days, the article points out, there are much tighter lending standards in place, including far more rationale loan-to-value standards. Thus, home prices in most major U.S. markets have been climbing naturally as those markets recover. Still, home prices in most markets have yet to climb back to normal levels.

So, while it never hurts to remain alert and somewhat cautious, there is probably no cause for real alarm where housing is concerned.

Mid-summer housing market update

Sales of newly built, single-family homes jumped 18.6% in May, according to the National Association of Homebuilders (NAHB). The 504,000-home mark posted in May is the best since May 2008 before the last bubble burst. Furthermore, the NAHB says there is a lot of pent-up demand among consumers, which will continue to be released as the job market continues to improve.

One challenge going forward is new home construction. Currently there is a 4.5-month supply of new homes given the current sales pace. Both the NAHB and NAR (National Association of Realtors) agree that the pace of new home construction needs to pick up.

For the month of May, housing production was down 6.5%, according to data from the U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau. However, May’s performance was still 9.3% better than May 2013. Builders are seeing hopeful signs in the market and, thus, continue pushing forward accordingly. But they remain somewhat cautious.

Existing home sales, for the month of May, were up about 5%. The current inventory stands at 2.28 million homes, a 6% increase in inventory from one year ago. Lawrence Yun, NAR’s chief economist, says this rise in inventory played a big role in the jump in May sales. Many potential buyers with pent-up demand have simply struggled to find suitable homes to buy. As the inventory increases, therefore, so does the pace of sales. This further highlights the need for an acceleration of new home construction.

Why this all matters to landscape industry professionals

The housing market is one of three primary drivers of economic growth in the landscaping industry. New homes obviously require new landscaping. New homes also lead to a need for more landscaping and lawn care equipment.

Additionally, a healthy housing market typically signals a healthy jobs market. Since consumer spending is 2/3 of the U.S. economy and another big driver of economic growth in the landscaping industry, getting as many Americans back to work as possible should be the desire of all Green Industry professionals.

Loading